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'Filing returns for trusts, may become mandatory'

Other than non-profit organisations, there is a view of tightening the regulations of other institutions to prevent revenue leakages.

india Updated: Feb 20, 2006 16:55 IST

The Budget is likely to make it mandatory for charitable trusts, educational and medical institutions to file returns although the tax exemptions enjoyed by them may continue.

Government is also thinking of speeding up the process of granting clearance to trusts, educational and medical institutions but bring their books under scrutiny by asking them to file returns annually, official sources said.

At present, charitable institutions, non-profitable universities, educational institutes, hospitals and medical institutes with income above Rs 1 crore are granted tax exemption under Section 10 (23C) of the Income Tax Act.

Similarly, provisions have been made for institutions that enjoy tax exemptions for expenditures on scientific research, social and statistical research.

So, they did not have to mandatorily file return of their income to the tax department.

However, sources said, a recent Taxation Laws (Amendment) Bill makes it mandatory for these trusts and institutions to file returns.

Other than non-profit organisations, there is a view of tightening the regulations of other institutions to prevent revenue leakages.

Tax exemptions are granted to promote social cause of charitable trusts, education and medical institutions.

However, there has been a growing demand from Institute of Chartered Accountants of India, NIPFP and industry bodies to remove such exemptions.

Even Parliamentary committees have favoured mandatory filing of return by trusts and societies and effective scrutiny to prevent revenue leakages. (More)

"One such issue is exemption to educational institutions, hospitals and charitable trusts, etc, which are registered as trusts but in reality are being run on commercial lines and inspite of earning huge income are exempted under the tax law," it said.

In a memorandum, ICAI has pointed out that tax exemptions prompt people to resort to "unwarranted tax planning".

As no recognition is given to an educational institution by the Education Board or University unless it is a society or trust, ICAI said all such institutions per force operate as charitable trusts and become eligible for exemption under Section 10 (23C) or Section 11 of Income Tax Act. Same thing applies for hospitals and medical institutions also.

In case the education boards or universities amend their legislations withdrawing the conditions of recognising only those institutions which are trusts or societies, then many such institutions will opt for corporatisation and pay considerable tax, ICAI said.

First Published: Feb 20, 2006 16:55 IST